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Long road for Chinese

Clock ticking for Beijing Auto in SA

With a huge investment under way in the Eastern Cape and ambitious production plans, Beijing Automotive faces an immediate challenge to overcome weak brand recognition

26 April 2017 - 09:53
David Furlonger

The clock is ticking for car manufacturer Beijing Automotive as its new vehicle assembly plant in the Eastern Cape begins to take shape. With barely a year to go before the plant starts producing vehicles, the Chinese state-owned enterprise introduced its first imported car this month to an SA public that, to all intents and purposes, doesn’t know the company or its products exist.

Beijing Auto officials are sticking to a timetable that requires the greenfields plant, at the Coega industrial development zone near Port Elizabeth, to roll out cars from the first half of 2018. With their 35% local partner, the Industrial Development Corp (IDC), the Chinese confirm they will spend up to R11bn to create a factory with an eventual annual capacity of 100,000 cars, pick-ups and sports utility vehicles (SUVs). In theory, that target will be reached in 2027. That’s ambitious, considering the company’s Baic auto brand is such an unknown in SA. That makes the sales performance of this month’s imported first model, the D20 small car, very important. It has to create brand awareness, and quickly.

The nascent plant is intended to service the whole of sub-Saharan Africa but low oil and commodities prices have forced some important markets into virtual shutdown.

Craig Parker, African automotive head at the global Frost & Sullivan consultancy, says that in Nigeria, where government is trying to weaken the market dominance of used imports, only 9,000 new cars were sold in 2016 — less than 20% of the market two years earlier. To put that in perspective, SA sold more than 360,000 new cars in 2016. In Angola, another oil-dependent economy, some motor companies have suspended sales operations. Parker says the Nigerian market should start to pick up from 2019.

For the immediate future, therefore, the Baic (pronounced "bike") brand will rely heavily on SA for volumes. The D20 is based on a small Smart car designed by Mercedes-Benz, one of several global brands with which Beijing Auto has joint ventures in the Chinese market.

So far, Beijing Auto officials haven’t talked of SA demand or sales targets, only production capacity. Sales of the D20 and subsequent imports, however, could influence actual production — hence the need for rapid growth in brand recognition.

Making the task tougher is the market into which the D20 has been launched. Instead of the forecast sales revival after three years of decline, SA new-vehicle sales are expected to keep sinking, in the wake of SA’s credit downgrade.

The National Association of Automobile Manufacturers of SA (Naamsa), which represents local assemblers as well as importers, has suspended sales forecasts because of economic uncertainty. Some analysts think the market could keep going down for another two years.

It’s a similar picture to the one that faced the first wave of Chinese automotive invaders, 10 years ago. When they made their plans, the SA market was on the rise. By the time their vehicles arrived in 2007, global recession was looming. The SA new-vehicle market collapsed. Some Chinese brands packed their bags and left.

Theirs were import operations, with virtually no capital investment. Beijing Auto is in a different situation. It is already invested in SA. Officials say the company, and the Baic brand, are committed to SA and Africa. The rate of production development, and of payback, are not certain but "we are here for the long run", says one.

In any case, he says, it’s not as if emerging-market volatility is foreign to multinational investors. As several established local vehicle manufacturers are showing, an economic "blip" is no reason to stop spending.

BMW SA has just shown off progress on its R6bn revamp of the Rosslyn assembly plant, near Pretoria. It has also announced a R400m investment in a central parts distribution centre and expansion of the company’s Midrand headquarters to include a dealer training centre for sub-Saharan Africa.

Rosslyn plant: BMW is preparing to switch models to the X3 sports utility

The Rosslyn plant, which has built the 3-Series sedan since 1983 and exports over 80% of production, is preparing to switch models, to the X3 SUV. The changeover was due to happen in 2019 but MD Tim Abbott says that because of global demand for the vehicle, plus faster-than-expected construction at Rosslyn, the launch will now happen in 2018.

One of the challenges for BMW SA will be to significantly increase X3 local content from levels achieved with the 3-Series, where the local value-add percentage of total production costs is significantly below the industry average of 38%. Trade & industry minister Rob Davies wants this to rise to 60% in the next phase of motor industry policy, after 2020 – something that Abbott says is not currently feasible for his company.

Neither, like his competitors, is he taken by government’s desire for multinational motor companies to cede 10% of their 100%-owned SA subsidiaries to local shareholders, in pursuit of black empowerment targets.

"They can take that off the table right now," he says. "It’s not going to happen."